GUJARAT LAND DEVELOPERS,MUMBAI vs. DCIT, CENTRAL CIRCLE 1, THANE, THANE

The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal

Representatives were heard at length. Case records carefully perused and the relevant decision of the Co-ordinate Bench brought to our notice duly considered.

Briefly stated the facts of the case are that a search and seizure action u/s 132 of the Act was carried out on 12/02/2021 on the business as well as residential premises of Span Group, including the assessee. 3 6. During the course of search action, the residential premises of Mr. Anil Morarka, one of the key business associates of the group was also searched. It came to the notice of the Department that Mr. Anil Morarka used to maintain cash records of Span group of entities. The bundles seized from his premises indicates on-money received by the various entities of the group also expenses incurred in cash by them. 6.1. The entire addition revolves around the unsecured loan of Rs.50,97,643/- taken by the assessee from Mishka Finance and Trading Limited at Rs.25,48,082/- and Radford Global Limited at Rs.25,49,561/- totaling to Rs.50,97,643/-. 7. The AO was of firm belief that qua the pre-search investigation the loans taken by the assessee turned out to be accommodation entries which are rooted in books of account without payments of taxes and accordingly the AO brought the same to tax by making addition of Rs.50,97,643/- u/s 68 r.w.s. 115BBE of the Act. 8. The assessee agitated the matter before the ld. CIT(A) but without any success. 9. The entire quarrel revolves around whether the impugned addition is based upon any incriminating material found at the time of search. The case of the revenue is that the on-money received by various entities accepted by Mr. Anil Morarka is in itself incriminating and the accommodation entry in the form of loans recorded in the books of account is nothing but outcome of on-money received by the group. 10. We have carefully considered this contention of the revenue but do not find any force inasmuch as no addition has been made in respect of alleged on-money received by the assessee. In our understanding of the facts, the entire addition is based upon surmises and conjectures. 4 The alleged unsecured loan is duly recorded in the books of accounts maintained by the assessee which has not been rejected by the AO. Therefore, in our considered opinion, the entries found to be recorded in the regular books of accounts cannot form incriminating material. 10. Since the impugned assessment year falls under the category of unabated assessment year, therefore, the ratio laid down by Hon’ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. [454 ITR 212], squarely applies. The relevant findings of the Hon’ble Supreme Court read as under:- “9.1. That prior to insertion of Section 153A in the statute, the relevant provision for block assessment was under section 158BA of the Act, 1961. The erstwhile scheme of block assessment under section 158BA envisaged assessment of 'undisclosed income' for two reasons, firstly that there were two parallel assessments envisaged under the erstwhile regime, i.e., (i) block assessment under section 158BA to 'undisclosed income' and (i) regular assessment in accordance with the provisions of the Act to make assessment qua income other than undisclosed income. Secondly, that the 'undisclosed income' was chargeable to tax at a special rate of 60% under section 113 whereas income other than 'undisclosed income' was required to be assessed under regular assessment procedure and was taxable at normal rate. Therefore, section 153A came to be inserted and brought on the statute. Under Section 153A regime, the intention of the legislation was to do away with the scheme of two parallel assessments and tax the 'undisclosed' income too at the normal rate of tax as against any special rate. Thus, after introduction of Section 153A and in case of search, there shall be block assessment for six years. Search assessments/block assessments under section 153A are triggered by conducting of a valid search under section 132 of the Act, 1961. The very purpose of search, which is a prerequisite/ trigger for invoking the provisions of sections 153A/ 153C is detection of undisclosed income by undertaking extraordinary power of search and seizure, i.e., the income which cannot be detected in ordinary course of regular assessment.

The Hon’ble Supreme Court has approved the interpretations given by the Hon’ble Delhi High Court in the case of Kabul Chawla (380 ITR 573)(Delhi) and by the Hon’ble Gujarat High Court in the case of Saumya Constructions (387 ITR 529)(Guj.). The relevant observations made by the Hon’ble Supreme are extracted below:- “7.1 In the case of Kabul Chawla (supra), the Delhi High Court, while considering the very issue and on interpretation of section 153A of the Act, 1961, has summarised the legal position as under:

On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. i. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. ii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post- search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e., those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the 6 findings of the search and any other material existing or brought on the record of the AO vii. Completed assessments can be interfered with by the AO while making the assessment under section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered disclosed or made known tn the course of original assessment." 7.2 Thereafter in the case of Saumya Construction (supra), the Oujarat High Court, while referring the decision of the Delhi High Court in the case of Kabul Chawla (supra) and after considering the entire scheme of block assessment under section 153A of the Act, 1961, had held that in case of completed assessment/unabated assessment, in absence of any incriminating material, no additional can be made by the AO and the AO has no Jurisdiction to re-open the completed assessment. In paragraphs 15 & 16, it is held as under: n15.On a plain reading of section 153A of the Act, it is evident that the trigger point for exercise of powers there under is a search under section 132 or a requisition under section 132A of the Act. Once a search or requisition is made, a mandate is cast upon the Assessing Officer to issue notice under section 153A of the Act to the person requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Since the assessment under section 153A of the Act is linked with search and requisition under sections 132 and 132A of the Act, it is evident that the object of the section is to bring to tax the undisclosed income which is found during the course of or pursuant to the search or requisition. However, instead of the earlier regime of block assessment whereby; it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year, falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub-section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Subsection (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub-section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says, that such revival shall cease to have effect if such order of annulment is set aside. Thus, any proceeding of assessment or reassessment falling within the, six assessment years prior to the search or requisition stands abated and the total income of the assessee is required to be determined under section 153A, of the Act. Similarly, sub-section (2) provides for revival of any assessment or reassessment which stood abated, if 7 any proceeding or any order of assessment or reassessment made under section 153A of, the Act is annulled in appeal or any other proceeding.

Section 153A bears the heading 'Assessment in case of search or requisition". It is well settled as held by the Supreme Court in a catena of decisions that the heading of the, section can be regarded as a key to the interpretation of the operative portion of, the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning From the heading of section 153, the intention of the Legislature is clear, viz, to provide for assessment in case of search and requisition. When, the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the assessment, should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition. In case no incriminating material is found, as held by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. CIT (supra)**, the earlier assessment would have to be reiterated. In case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, famished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act."

For the reasons stated hereinbelow, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra), taking the view that no addition can be made in respect of completed assessment in absence of any incriminating material.

From the above discussion, it is clear that the completed assessments i.e., unabated assessments can be interfered with only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.